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May, 2014 Review and Outlook

By June 2, 2014September 16th, 2023No Comments

Highlights in this Week’s Update:

  1. The large company U.S. stock indices produce gains in May, but year-to-date the Dow struggles to stay ahead of break-even.
  2. Bond yields continue to fall in 2014 bringing lower mortgage rates and higher bond prices.
  3. With interest rates low,now may be the time to explore various alternatives to cash/C.D. type investments.
  4. Our managed portfolios at all risk levels continue to perform well relative to risk in May as well as year-to-date through May 31st.

The Markets:

May produced positive results for the major large company U.S. stock indices.  The Dow Jones Industrial Average was up less than 1%, for a 0.8% gain, while the broader based Standard & Poor’s 500 stock index gained 2.1% last month.  For the year, the Dow is up just 0.9% and the S&P 500 4.1% after 5 months.  (MarketWatch)

It’s interesting how the markets can sometimes humble the best analysts. Take what’s happened in the bond market since the beginning of the year.  Last year, there was no shortage of talk that bond prices were at a peak (bond prices and yields move in opposite directions) and yields would rise. Dutifully, prices did decline and yields rose, with the benchmark 10-year Treasury yield increasing from a May 2nd low of 1.66% to 3.04% by December 31st (U.S. Treasury).

Since the beginning of the year, however, the yield has failed to follow the script, drifting lower and falling over a half a percentage point with bond prices rising. The drop in bond yields gained momentum in May – see Figure 1.


Today, June 2nd, the 30 year fixed rate mortgage has now dropped to 4.15%, and the 15 year is down to 3.17%.  Last July 5th, the 30 year rate had reached 4.75%. (

We had been expecting for this to occur, and feel we might even see lower rates between now and year-end. What’s going on? An interesting article on Reuters, which centered on speeches and Q&A sessions given by former Fed Chief Ben Bernanke, may offer some clues. The article suggested the former Fed chief (Bernanke’s term ended in January) has never been clearer regarding his expectations that easy-money policies and below-normal interest rates are here for a long time to come.

Moreover, central banks around the globe remain in a very accommodative mood. For example, the European Central Bank (ECB) has cut its key rate to 0.25%, and policy makers across the Atlantic have hinted that they may be ready to launch a U.S.-style program of bond buys (ECB monthly press conference). At a minimum, officials have said they may once again cut rates in the near term.

Germany, sometimes viewed as the economic strongman of Europe, is experiencing yields that are near a record low. Why is this important? Simply because falling yields in Europe may help anchor U.S. yields. Funds can and do flow unimpeded around the globe. Why buy a bond from a troubled nation if the credit-safety of Treasuries is within hailing distance?

It’s not just Treasury bonds. Investment-grade corporate debt, real estate investment trusts (REITs) and junk bonds (high yield) have all performed well through the first five months of 2014. (Wall Street Journal,, StockCharts, MarketWatch).

Alternatives to Cash/Money Markets/C.D.’s

With the current low interest rate environment continuing, this might be a good time to explore alternatives for your excess cash, money market, and C.D. type investments.  We have recently been able to assist clients in providing various options in which to invest current assets sitting in cash type accounts such as money markets, c.d.’s, etc. and helped improve overall returns and tax benefits.  Call us today to see what your personal options might be at this time.

Our Outlook:

The various market sectors continue to move in a direction that benefitted our current portfolio allocations for all risk levels in May.  The fixed income/bond assets are reflecting the decline in interest rates so far in 2014 with higher prices. The “alternative” asset category, which provides exposure to commodities, real estate, and precious metals, has performed well to date.  We continue to focus on individual company stocks rather than stock mutual funds, with an emphasis on current valuation and/or dividend income.  We still see warning signs of a stock market that may be “topping out” and are moving forward with caution.

It’s hard to believe that 2014 is now almost ½ over, with only 7 months left and just one month remaining in the second quarter.  We hope you are all having a great start to the summer months.  Please don’t hesitate to call if you ever have any questions or concerns, or if we can be of further service in any way.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.


1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly.  Past performance does not guarantee future results.

3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly.  Past performance does not guarantee future results.

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